The return of volatility

The year 2018 began strong thanks, among other points, to the tax reforms for US companies, which boosted the markets. In February however the equities experienced a correction of about 10%, after that the salary figures had been published in the US, fostering fear on higher rate rise than expected. Equities had become (too) expensive after the strong and rapid rise, while bond rates rose and reached high technical levels. With the observed correction, valorisations are back to reasonable levels, especially for European equities. Our global scenario continues to favour equities, as benefits should increase by about 10% and worldwide economic growth remains strong. However the length of the economic cycle influences central bank policies, which are at the beginning of their normalisation phase, and first signs of inflation are starting to emerge, especially in the US. These last factors might bring more volatility to the markets during the year and are not favourable for bonds, which we continue to underweight in our portfolios.